eHealth Inc

eHealth Inc (NASDAQ: EHTH) is a California, United States-based insurance Company, which provides an online marketplace of health insurance for individuals, families and small businesses.

On 18 February 2021, the Company will release its Q4 FY20 results.

Rationale for Valuation – Speculative Buy at USD 56.00

• During the Q4 AEP, the strategic initiatives were on track to deliver superior results, supported by several new capabilities in 2020 and increased the estimated Medicare membership.
• On the liquidity front, the current ratio was 4.38x in September 2020, which was higher than the industry median. Also, the liquidity position stays strong, with the confidence to increase the investment for the future.
• From the last three years, the Company's debt/equity ratio was nil.
• From the technical standpoint, 14-day RSI stood at 35.50, which is supporting the upside movement.

Key Risks

• During the heightened uncertainties, EHTH must maintain substantial capital adequacy and liquidity to meet the rising claims requirements.
• The global financial crisis can lead to a limited funding opportunity.

Recent News

On 29 January 2021, the Company announced that an affiliate of H.I.G. Capital has entered into a binding agreement through purchasing convertible preferred stock and make a USD 225 million investment in the Company.

Trading Update (as on 29 January 2021)

• In Q4. the Company expects revenue to be in the range of USD 291-293 million, GAAP net income to be between USD 57-59 million and Adjusted EBITDA to be in the range of USD 81-84 million.
• In FY20, eHealth expects revenue to be in the range of USD 581-583 million, GAAP net income to be between of USD 43.5-45.5 million and Adjusted EBITDA to be in the range of USD 81.5-84.5 million.
• For Medicare Advantage products, the number of approved members increased by 30% YoY in Q4 FY20 while in FY20, it increased by 39% YoY.
• In FY20, the number of approved members for major medical individual and family plan products surged by 4% YoY.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

In 2021, the approved Medicare members are expected to grow by the mid-20% range as compared to 2020, while Medicare Advantage lifetime values are also expected to increase. It also expects the positive impact of higher commission rates and the EHTH's retention initiatives. However, in FY21, the Company expects a decline in Residual or "tail" revenue in the EHTH's Medicare and Individual & Family Plan businesses and a decrease in acquisition costs as well as a considerable slow-down in fixed cost growth. In the first weeks of 2021, the Company saw positive enrolment trends. It delivered several new capabilities in 2020, with the long-term growth strategy. Meanwhile, Q3 FY20 results reflect strong momentum in online Medicare enrolments, significant growth in Medicare advertising revenue and investment in the telesales capacity in preparation for the AEP (Annual Enrolment Period). Therefore, it is confident for the long-term prospects and will build a strong foundation, which drives growth and create shareholder value. The stock made a 52-week low and high of USD 47.84 and USD 152.19, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Speculative Buy” stance on eHealth Inc at the closing market price of USD 56.00 (as on 4 February 2021), with lower double-digit upside potential based on 17.73x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Document Security Systems Inc

Document Security Systems Inc (AMEX: DSS) is a developer and marketer of secure technologies. It is focused on blockchain security, brand protection technology, direct marketing, real estate, healthcare, and securitized digital assets.

Rationale for Valuation – Speculative Buy at USD 4.33

• The Company has decent fundamental metrics as it has maintained a net margin and ROE above 100% and 10% in the last period (Q3 FY20).
• On the liquidity front, the current ratio was 3.97x in September 2020, which was higher than the industry median. Also, the liquidity position stays strong, with the confidence to increase the investment for the future.
• The debt/equity ratio was 0.04x at the end of September 2020, lower than the industry median. Hence, the Company is less leveraged as compared to the industry.
• From the technical standpoint, 14-day RSI stood at 39.32, which is supporting the upside movement.

Key Risks

• The operational and financial pressures have slowed down the transformation programme.
• The Covid-19 pandemic has put clients, customers and the service delivery under huge pressure. This pandemic has also thrown up a myriad of challenges and opportunities.

Recent News

On 4 February 2021, the Company announced the upsized public offering of common stock with USD 34.5 million expectations.

On 19 January 2021, the Company stated that Impact BioMedical, Inc. (Group’s wholly-owned subsidiary) entered into an investment and distribution agreement with Nano9 Labs, LLC, which expands nutraceutical product lines.

Q3 FY20 Trading Update (for the quarter ended 30 September 2020, as on 26 October 2020)

• In Q3 FY20, the Company’s revenue increased by 59% YoY to USD 4.2 million, with an increase of 40% YoY in printed products segment revenue, a decrease of 3% YoY in Technology sales, services, and licensing segment revenue and increased its direct marketing revenue.
• During the quarter, the net income from continuing operations increased to USD 5.4 million, which was up from a net loss from continuing operations. The increase in net income was driven by the unrealized gains on its marketable securities of USD 7.8 million.
• On 30 September 2020, the stockholders’ equity increased by 496% as compared with the previous period (31 December 2019).
• In 2020, it had completed its acquisition with the Impact BioMedical and launched AGaaS app on The App Store.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Conclusion

Q3 was a transformational quarter, with shareholder equity increasing nearly five-fold to USD 73.3 million and USD 1.20 per share in net income from continuing operations. After completing the acquisition of Impact BioMedical, the Company declared a special share dividend. Further, the Company added USD 9.9 million from two separate offerings, resulting in cash of USD 11.6 million and strengthening the balance sheet. Overall, the Board stays confident in DSS’s ability to emerge from such an unprecedented period and also sustainable for the long term. It also signed several contracts and launched the AGaaS app, which will continue to see improvements in the Company's top and bottom line.  The stock made a 52-week low and high of USD 3.68 and USD 15.60, respectively.

Based on the decent growth prospects and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Document Security Systems Inc at the closing price of USD 4.33 (as on 4 February 2021), with lower-double digit upside potential based on 2.50x EV/NTM Sales (approx.) on FY21E Sales (approx.).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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